Malaysia’s Lagging Agriculture Sector

New Paradigms needed. Asia Sentinel 3rd December 2019

Malaysia, whose agriculture sector led the economy for decades into the 1970s, is falling behind Indonesia, Thailand, Vietnam, and other regional players like China, Taiwan, and Korea in terms of innovation, technology, know-how and methodology and product and value chain development.

The country’s long neglect of the sector and narrow focus on plantation crops at the cost of encouraging crop diversity has left the country with serious issues and challenges. Despite the fact that the sector contributes 7.3 percent to national GDP, it employs 1.5 million workers, fully 10 percent of the workforce.

Agriculture’s dominance of the economy ended in 1981, when then-Prime Minister Mahathir Mohamed’s massive push towards industrialization left the Ministry of Agriculture without sufficient budget to operate the office air-conditioning system fulltime during working hours. While the sector was rejuvenated somewhat by Mahathir’s successor, Abdullah Ahmad Badawi, through massive fund increases, it has never really recovered.

The plantation sector is operated by primarily government-linked companies (GLCs) and large publicly listed estate companies. Utilizing around 5 million hectares, palm oil production contributed RM40.2 billion to GDP in 2018. The high profitability of palm oil as a crop over the years has deterred the development of alternative crops.

However, palm oil production in 2018 declined by about 2.5 percent over the year before. In March this year, the European Commission dealt the industry another blow, concluding that palm oil cultivation has caused deforestation and decided that palm oil as a feedstock in European biodiesel will be phased out by 2030. Malaysian plantations are working towards achieving Malaysian Sustainable Palm Oil (MSPO) certification, which requires estates to meet a list of specific environmental standards and workers’ rights before January 1 in an attempt to alleviate EU concerns.

In addition, there are concerns over health issues with consuming palm oil, which will take a lot of resources on the part of the palm oil lobby to counter. Malaysian palm oil trade to India is also in jeopardy due to Prime Minister Mahathir Mohamad’s refusal to allow the extradition of the firebrand fugitive Islamist preacher Zakir Naik back to India, where he faces money laundering charges.

With the expected decline in world demand for palm oil, Malaysia, Thailand, and Indonesia are trying to consume more domestically as biodiesel. However, Malaysia with its diesel subsidies is struggling due to the relatively high cost of palm oil, vs subsidized diesel. Malaysia cannot afford to be complacent over palm oil any longer. It’s a mature market where production is set to decline over the coming years, where alternatives are needed.

Malaysia is still the world’s 5th largest producer of rubber behind Thailand, Indonesia, Vietnam, and China. Rubber production is almost totally in the hands of 600,000 smallholders. However, with prices drastically depressed due to severely weakened demand from China, reports claim that more than half of Malaysia’s rubber holdings have been abandoned. Even with the Malaysian Rubber Board providing incentive payments to cover lower prices, rubber production has dropped by almost 20 percent in the last year. The rubber industry is set to shrink until demand outstrips supply once again.

Historically, Malaysia’s rice production has only produced 60-70 percent of the country’s consumption. Approximately 200,000 aging paddy farmers on plots ranging between 1 and 5 hectares cultivate paddy in the country. Paddy farming only produces marginal income, even with the subsidies provided by the government to farmers. Unlike paddy farmers of the past, farmers today usually don’t multi-crop paddy, vegetables, fruits, coconuts, and raise fish, poultry, and livestock.

Paddy production lacks standardization and doesn’t have Good Agricultural Practice (GAP) or HACCP certification. Often unregistered pesticides are used, leaving chemical residuals. Thus, food safety and traceability are issues. Although Malaysian paddy yields are on a par with Thailand, they are behind Philippine, Indonesian, and Vietnamese yields.

Farmers mostly don’t own mechanical equipment, so must hire an array of contractors through the production process. Due to Shariah law on inheritance, land holdings continue to be broken up between families, making paddy farming even more difficult. Large belts of idle land, estimated at 119, 273 hectares, can be seen across the country partly due to family land disputes. Farmers have no involvement through the supply chain, so opportunities to add value to rice are non-existent. Under the present paddy farming system, there is no way farmers will be able to improve their incomes.

The only future for paddy farming to benefit farmers is to develop cooperatives that manage economically viable estates made up of a group of farmers holdings. These cooperatives should be for the benefit of the farmers, run by the farmers, and owned by the farmers. These cooperatives could plant, cultivate, harvest, brand and package value-added products like red and brown rice varieties that have higher market end opportunities. Contract farming initiatives creating paddy estates have shown to reduce costs by 50 percent and increase yields up to 30 percent.

Other agricultural activities include cocoa production, which in the 1980s looked promising before most plantings were wiped out through disease. Although production is still dwindling, some entrepreneurs are producing boutique beans and developing downstream niche chocolate production. Vegetable and fruit production produce 40 percent and 66 percent of the nation’s needs respectively. Production is gradually increasing with an impetus of new younger farmers, who are trying to make businesses out of their farms.

However, knowledge, experience, know-how, are still being built up. Soil and environmental conditions are poor in many areas, with nutrient lacking soils, polluted water sources, with chemical contaminants present. The disease has almost wiped out potentially promising niche industries like dragon fruit. Many producers are still nascent to certifications and supply chain management.

Malaysia currently only produces around 20-25 percent of its beef, goat and mutton requirements. Despite many previous government initiatives to bolster meat production, there is a chronic shortage of grazing land on the peninsula, and in some cases, public abattoir facilities are not certified. Likewise, dairies supply only a fraction of local demand. In contrast, the privately developed and operated poultry industry has been developed as a successful state of the art, fully integrated industry, not only producing all of Malaysia’s poultry needs, but Singapore’s as well.

Smallholders have tended to be minimally educated and are now well into their 60s. Paddy fields, rubber plantations, and dusuns (fruit orchards) have been left idle with no one to take over. This is in contrast to farmers in other countries who take over from their fathers with technical and business degrees and vision.

Local Malaysian farmers have been indoctrinated by the agricultural backgrounds of their localities and that their land holds limited crop opportunities. They have been scared by scammers who tell them to plant bananas, lemongrass, chili fertigation, agarwood, and teak, only to fail technically or have no buyer once the crop is ready to harvest. Young people don’t want to take over the family farm holding because they want to find better opportunities.

This is one of the weaknesses of the Ministry of Agriculture and subordinate agencies. These organizations lack the ability to empower the youth of rural communities through outreach and extension. There is also no vision of how integrated communities should be created and developed into multiactivity local-sustainable micro-economies. Malaysia, unlike Thailand, doesn’t have model integrated farms that demonstrate and teach communities how to farm and create cottage industries.

While Malaysian academics write academic papers with an eye to promotion, their Thai counterparts are in the community helping the people create products, processes, brands, and markets. They enrich community sustainability. This is a prerequisite to develop and expand coconut production and create multiple downstream industries using coconut materials to produce coconut oil, virgin coconut oil, coconut milk, activated carbon, copra, processed coconut products, and even animal feeds.

The Ministry of Agriculture’s research priorities have been developed by bureaucrats rather than industry. Research priorities need to be focused on the problems and opportunities of today, for current stakeholders. Research has been left to small units at the Malaysia Agricultural Research and Development Institute (MARDI). This would include products like ginger, chili, onion, garlic, cabbage, sweet corn, eggplant, okra, long beans, avocado, asam jawa – tamarind – figs, grapes, mangoes, cashew nuts, and macadamia nuts, etc.

The successful food processing firm Adabi Consumer Industries is unable to purchase all its needs locally and is forced to import raw materials. Unlike Thailand and Taiwan, little has been done to help communities develop downstream products like dried and canned fruits, processed foods, dairy foods, snacks, ice cream, sausages, pies, and burger patties, etc. Institutes like MARDI may show the minister and media some of these products in exhibitions, but rural communities rarely get to see them, let alone learn how to produce them.

Little is done to create branding paradigms other than the slogan “Malaysia Best.” Sabah and Cameron Tea companies have successfully used geographical branding, halal farming is largely ignored even though the global halal market is growing by double digits. Organic and ethical products hardly exist.

The Pakatan Harapan government has decided that rather than put effort into meeting the country’s current agricultural challenges the rural community depends on, it will invest time and resources into smart farming. This is an opportunity for consulting and technology companies to make a lot of money, and bureaucrats travel overseas on junkets to smart farming exhibitions at taxpayer expense.

But smart farming will not revitalize existing farming in the country. It will assist new entrepreneurs with access to expertise and capital to pick up grants and incentives. Smart farming is set to be the next white elephant, just as the biotech initiative was.

Malaysian agriculture is at a crossroads. The whole sector needs rethinking. People with experience and knowledge of the issues are in the country. Before committing to smart farming, which does have a place in some niches, the potential future directions of the sector need to be discussed openly, so a new thought out direction can be set in Malaysian agriculture. The government needs to work on transforming what already is, help rural communities that are in need, rather than look after its own with one more white elephant.